What is Binary Options Trading?

Updated on: 6 January 2020

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REGULATORY WARNING: Binary options trading is not legal in the United Kingdom. You should not register at any binary options broker, even if it accepts UK traders. No binary broker is legally allowed to operate in the UK.

Binary options trading is investing on the future movement of certain tradable assets such as commodities, stocks, indices, Forex currency pairs and more. Binary options trading is known as such because there are only two outcomes of such a prediction.

A value of an asset can only increase or decrease during a given time frame. Traders will have to predict the direction of this movement, so, the word “binary” comes from the fact that traders will be able to choose one of two options when they make a prediction.

In order to make a prediction, traders will have to invest a certain amount of money on that prediction. If their prediction becomes true and the value of the selected asset moves in the predicted direction, then the traders will get their investment back plus a commission that represents the profits.

Read this page in order to learn more about binary options trading.

What is Binary Options Trading?

As explained in the intro, binary options trading is predicting and investing on the future movement of certain assets. The value of an asset can only move into two directions: up or down. This means that, even if traders aren’t using any basic strategy whatsoever, their overall long term winning rate will still be around 50% (in practice a bit less due to payout rates – explained here).

In order to trade binary options, traders will have to register at so-called binary options brokers. Here, they will have to make a real money deposit. This deposit will of course not be a payment to the broker. The money deposited will remain the trader’s property and can be used to invest on predictions.

After making a deposit, traders can choose various assets to trade on. The most common assets in binary trading are stocks (like Apple, Microsoft, Google, etc.), commodities (like gold, silver, oil, etc.), Forex currency pairs (like, USD/EUR, USD/GBP, etc.) and indices (like the DOW Jones, NASDAQ, etc.).

After selecting an asset, traders will have to predict if the current value of the asset will either decrease or increase during a certain time frame. The result of the contract will be decided based on the value of the asset when the established time frame in question will expire.

If the prediction made comes true, the trader will receive his or her investment back plus a certain commission that represents the profits. If, however, the prediction does not come true, then the trader will lose his or her investment. Most brokers also permit investments as low as $5 per trade, which means that binary options are also suited for beginners and casual traders.

The profits will be calculated taking into consideration the initial investment multiplied by the promised payout percentage of a binary options investment. In binary options trading, before investing money on a prediction, traders will in advance know the payout percentage and, as such, the amount of the potential profits too.

(Source: FinancialTradingSchool.com)

The following example illustrates how binary options work:

– Apple’s stock prices are at $500 at this very moment (imagine it’s September 12th now)

– A new iPhone will be released on September 14th

– At a binary broker you can make a prediction that Apple’s stock prices will be either above or below $500 after a certain amount of time

– You select this period of time to be 8:00 AM September 15th (one day after the iPhone release)

– You now choose whether Apple’s value will be above $500 or below $500 on this date

– You invest $100 on the outcome that Apple’s stock prices will be above $500 by that date

– The payout percentage offered by the broker is 90%

If you manage to accurately predict the outcome of the option, you will win a total of $190, of which $90 represents the profits made. If your prediction will be incorrect, you will lose your investment. And this is how it works. It’s really this simple to trade binary options online.

In the example above, you would have highly likely won because Apple’s stocks almost always increase after a new product launch (this strategy works with other companies too).

Can anyone trade binary options?

Unlike other types of financial trading such as stock and Forex trading, binary trading doesn’t necessarily require any advanced and specialized economics training. However, successful binary options trading does require some patience and attention to detail as well as research.

The movement of the value of most assets can be predicted with reasonable accuracy after conducting necessary research. However, traders will have to pay attention to the latest developments in the financial and business world. You can do this by watching news or reading finance related articles on the web. You don’t have to be an actual economist.

For example, if a major company such as Apple is just about to release something big like a new iPhone, then you can know with a very large certainty that the value of Apple’s stocks will increase the day after.

Knowing this, you make a prediction that Apple’s stock prices will have increased the day after the new iPhone release compared to the present value. This is almost a sure-win prediction that for me personally works almost every single time.

Related article: Using long-term binary options strategies

Most brokers offer hundreds of assets, so you can almost always find companies that are about to release something new in the coming days and weeks and make pretty accurate predictions. And this is just on stocks; there are many major price-influencing events related to currencies and other assets as well.

With the proper research and dedication almost anyone can make money with binary options.

Can you really make money with binary trading?

Yes, if you pay attention to news and understand the fundamentals of binary options trading then you could potentially make consistent revenues. However, like other forms of online trading, binary options also come with certain risks – and of course success is never guaranteed. The most significant advice is never to place random investments for no apparent reason. You should always make sure that you know what you’re doing.

Refer back to the iPhone example above: Knowing that Apple will launch a new phone in 2 days almost always means that Apple’s stocks will have increased after 3 days. There are hundreds of such opportunities all the time.

You also don’t have to conduct research 24/7 in order to be able to accurately predict the movement of certain assets. Just opening your eyes to what’s happening around you and having some common sense are most of the time enough in order to be able to make very accurate predictions.

For example, you can only conduct research once per month related to all the major product released during that month of major companies. Make a list of what’s going to be released or announced by large companies next month and you have already found several dozen trading opportunities for that month.

Are Binary Options Legal?

There are various laws governing binary options in different countries. In most countries binary options are legal. There might, however, be some countries that do not allow domestic companies to offer binary options services to people. This, however, does not disallow citizens of those countries to register at legal binary options brokers operating from other countries.

Investing on binary options is, in fact, government approved and regulated in a number of countries such as the United States, the United Kingdom, Japan, South Africa, Cyprus, Malta, and all European Union countries. All these countries are giving out financial trading licenses to online trading service providers that offer legitimate services.

It’s OK if you’re not living in one of these countries. Unless binary options are not explicitly illegal in your country (and as far as I know it’s not illegal anywhere at this moment) you are perfectly fine if you register at brokers that are licensed elsewhere.

Is it safe to trade binary options?

Trading binary options is less risky than trading Forex and stocks, but this does not mean that it has no risks – all forms of investments have risks. This is because in binary trading you’ll always know in advance how much money you can win and how much you can lose on every single investment. In traditional trading, however, you’ll never be able to know in advance how much you can win and how much you can lose.

For example, if you invest $10 and are promised a payout rate of 90%, then you know that no matter what happens if you win you will always win $19. Similarly, if you lose, you will always lose no more than $10.

You should still trade binary options carefully. If you are a newcomer, then it might make more sense to invest lower amounts of money if you aren’t sure about your actions yet. Once you gain more experience, you can invest much larger sums that will promise much larger returns.

Where to Trade Binary Options?

You can trade options at binary options brokers. Binary brokers are financial service providers that have an official license that allows them to offer financial trading services. As stated above, in order to trade you’ll have to register and deposit money at such brokers.

Not all brokers are created equal, however. You have to make sure that you register at the best binary options brokers only. The best brokers are those that have a very large selection of assets, only offer legitimate services, and have very large payout rates.

I believe that the brokers I have listed on this site are the best companies that offer financial trading services. They are all legitimate brokers offering safe and fair online trading services.

In order to learn more about these brokers you are welcome to read the full reviews I’ve written. You can check out this list of binary options brokers that I endorse at this moment. This list is always changing due to new brokers I find to be legit being added or existing brokers eliminated due to either trader complaints or me thinking they aren’t that good anymore.

Also, I highly recommend you read my additional binary options guides in order to learn to trade options successfully and be able to generate consistent winnings.

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